Analysis: China's sway over Cambodia tests Southeast Asian unity

PHNOM PENH (Reuters) - Students in their twenties sit behind old wooden desks in Cambodia's capital, Phnom Penh, scribbling away as a teacher barks out phrases in a foreign language above the roar of motorcycles outside.

Unlike in most other countries in the region, the students at this private language school and others nearby are not learning English -- it's Chinese.

"Before, people came to this area to study English but now it's Chinese," said Gua Fa, a teacher and manager of the Ming Fa Chinese School. "The students all want to be tour guides, Chinese translators, or work in banks and restaurants."

It's another sign of China's growing influence in Cambodia, something that is upsetting the unity of the 10-member Association of Southeast Asian Nations (ASEAN).

China has a good standing in impoverished Laos and Myanmar as well, ASEAN members along with Cambodia, much to the chagrin of others in the bloc such as Vietnam and the Philippines, which are at loggerheads with Beijing over a territorial dispute in the South China Sea. Singapore, Brunei, Indonesia, Malaysia and Thailand make up the rest of the grouping.

As cash-strapped and underdeveloped Cambodia increasingly turns to Beijing, the group is worried about being held hostage by China's economic power over its poorest members.

"While China's loans and infrastructure projects have benefited the region, there has been growing resentment," said Bonnie Glaser, a senior fellow at Washington's Center for Strategic and International Studies (CSIS).

"There are also worries of excessive dependence on China as well as fears of increased vulnerability to economic pressure."

Of ASEAN's three poorer members, Cambodia appears to be the most under Beijing's sway.

About 40,000 Cambodians have enrolled in Chinese language schools, according to the Khmer Chinese Association in Cambodia, bucking the trend in a region promoting English ahead of 2015 launch of an ASEAN Economic Community (AEC) that wants to draw investors to a $2 trillion market of 10 countries and 600 million people.

"It will be more useful than English," said Heng Guechly, a student at another private school. "There's a lot of demand and China has a good relationship with Cambodia, so more Chinese will come to do business here."

Official data shows Chinese investment in Cambodia was $1.9 billion last year, more than double the combined amount of ASEAN countries and 10 times more than the United States.

Phnom Penh's low-rise skyline is dotted with Chinese cranes and construction projects. The two countries' flags fly side-by-side on building sites, where foremen shout in Mandarin at Cambodian laborers who grumble about the unfamiliar Chinese food they get served.

Official data showed 151,887 Chinese tourists visited Cambodia in the first half of this year, up 33 percent from the same period in 2011, with the tourism industry hoping to lure one million Chinese a year by 2020. Agribusinesses are being set up by Chinese companies and 70 percent of the 330 factories manufacturing garments -- Cambodia's biggest foreign currency earner and source of employment -- are Chinese-owned.

ECONOMIC COERCION

China's deep ties with Cambodia, and to a lesser extent with Laos and Myanmar, have effectively given Beijing an outsider's veto over decisions in ASEAN, which require consensus among all members.

That was demonstrated last month when an ASEAN foreign ministers' meeting in Phnom Penh ended without a joint communiqué for the first time in the group's 45-year history. The Philippines placed the blame on China, saying it had leaned on hosts Cambodia to torpedo any mention of territorial disputes in the oil- and gas-rich South China Sea.

According to diplomats at the ASEAN meeting, Laos and Myanmar tacitly supported Cambodia's determination to keep bilateral disputes with China out of the communiqué.

In recent years, China has been cozying up to Laos, weakening the longstanding influence of neighboring Vietnam, building roads, bridges and stadiums and offering new technology and free Chinese university scholarships to hundreds of students.

Chinese immigrant communities are swelling and at least two Chinese gambling enclaves have been set up inside Lao territory, one of which visited by Reuters featured casinos, hotels and karaoke bars under the watch of uniformed Chinese police. Last year, two-way trade jumped 40 percent and Chinese banks offered Laos $3 billion of loans, on top of promises to build a $7 billion high-speed rail network.

It's been much the same in Myanmar, which under Western sanctions moved into Beijing's orbit. Border trade and Chinese investment in oil, gas and hydropower boomed. However, with most sanctions suspended in reward for political and economic reforms after the end of army rule, Myanmar's uneasy dependence on China might soon come to an end.

SUITS STRATEGY

For Beijing, keeping ASEAN splintered suits its strategy on the South China Sea, the region's worst potential military flashpoint, where China wants to negotiate bilaterally with its much weaker rivals.

A less than united ASEAN would also help keep the United States at bay.

China's state Xinhua agency said this month the United States was trying to present itself as an honest broker in the dispute, but that its real intent was to stir up trouble and drive a wedge between China and its neighbors for its own gain.

Washington should "thoroughly abandon its plot to seek advantage from the chaos so the South China Sea can resume its role as a sea of peace, friendship and cooperation", Xinhua said in an angry commentary.

Lured by ASEAN's growth and wary of China's spreading influence, the United States is moving in swiftly as part of its strategic shift towards Asia, signing military cooperation deals that have emboldened Vietnam and the Philippines in their disputes with Beijing in the South China Sea.

Last month, Washington pledged millions of dollars for social, environmental, health and educational development in Indochina and sent two of its biggest-ever business delegations to Vietnam and Myanmar.

"Because this region has grown so significantly, we have no choice but to be here and be here in a profound, direct and visible way," Myron Brilliant, senior vice president of the U.S. Chamber of Commerce international division, told Reuters.

"We're making money here, doing ok, but there's a lot more that can be done."

The U.S. shift offers Cambodia, Myanmar and Laos a chance to hedge their bets, but experts say China won't let its influence in ASEAN wane without a fight.

"China has gotten a strong head-start and is deeply entrenched in their economies; a shift will not be easy," said Glaser of Washington's CSIS.

"Moreover, as other countries move in, Beijing will undoubtedly seek to reinforce its influence to avoid losing its preferential position and accompanying leverage."

The competition between the two powers will turn up the heat on ASEAN at the most critical juncture in its history.

"If we are not fully united and integrated, we can become the victim of external powers," ASEAN Secretary-General Surin Pitsuwan told the Jakarta Post newspaper.

"We must develop an ASEAN perspective on every issue. We should not come in with separate individual interests."